If a contractor with the ISO commercial property policy CP 00 10 10 12 orders material for a project and stores it on the premises at an insured location, then receives payment from the client for the material before moving it from the insured premises to the final installation point, is the material still business personal property (BPP) or has it become the personal property of others (PPO)?

In a similar example, if a retail store or distributor sells a product and holds the item on the premises for the customer to pick it up, is the product considered insured stock or BPP or is it now PPO?

PPO has a separate limit in the policy. The agent thinks that the provision for PPO in the insured's care, custody or control is for the property of others brought onto the insured's premises and held for work or storage—not for the insured's own product awaiting distribution. 

The policy states:

A. Coverage

1. Covered Property

b. Your Business Personal Property consists of the following property located in or on the building or structure described in the Declarations or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the premises described in the Declarations, whichever distance is greater:

(5) Labor, materials or services furnished or arranged by you on personal property of others;

Q: Does this mean the material is still BPP, even if it has been paid for?

Response 1: BPP includes “stock," which the policy defines as “merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping."

The valuation section says:

7. Valuation

We will determine the value of Covered Property in the event of loss or damage as follows:

c. "Stock" you have sold but not delivered at the selling price less discounts and expenses you otherwise would have had.

 If the property qualifies as stock, it is the insured's BPP. 

Response 2: Arguments can be made on both sides of this question. PPO is the property of others that is in the named insured's care, custody or control. While this could include property in the insured's care, custody or control for work or storage, coverage is not limited to that exposure. If the customer has paid for the property, it is the property of others.

The BPP coverage includes “stock." However, ownership is not addressed in this definition. I would be concerned about an insurer trying to deny coverage under BPP for goods that have been paid for because of the word "your" that precedes “business personal property" in the policy.

To avoid that possibility, I recommend blanketing the BPP and PPO limits. That means the insured is covered either way. Also, in the situations you described, the values of each coverage vary, so the blanket approach can help with possible coinsurance issues. 

Section A.1.b.(5) does not cover the property itself, so that won't help you here.

Response 3: What does the construction contract for the project state about transfer of interest, responsibility for damage and responsibility for insuring the goods while located at the contractor's insured location?

Material ordered for a project and stored at the contractor's insured location could be insured as PPO with an appropriate limit of liability. However, it is more common for such materials to be insured under a builders risk or installation floater.

In the other example, stock that is sold but not delivered is insured as BPP. If the limit on the PPO coverage is adequate, property that is sold to others but held by the insured would also be covered as PPO.

Section A.1.b.(5) applies to work performed on the property of others, including parts and materials that are part of the work. For example, furniture that a furniture restorer has in their shop must be insured as PPO or under an inland marine policy. The labor and materials that the restorer adds to the furniture would be insured as BPP because the furniture restorer would have an insurable interest in the property until the work is paid for.

Response 4: This is a great question—it could be a big deal for your client.

Firstly, this is primarily a legal issue. You need to know who is responsible for the property at each juncture, taking into account the payments that have been made and the applicable legal contracts that are in play. All this might be spelled out in the contract between your client and the customer but that wording could change from job to job. You'll need to get that information from your client and their attorney. If there's no contract, the Uniform Commercial Code will probably apply to determine who is responsible. 

You will also need a clear understanding with your underwriter about how this property will be covered as it flows from one legal status to another and moves from one location to another. 

Once you've gathered all that information, you'll be in a position to recommend coverage that takes in the whole picture. I'm guessing it will be a form that provides greater flexibility than a simple commercial property form.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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